Manycountries fail to prepare for the financial crisis because they stillhold the notion that economic recessions are unpredictable. However,the article “The crisis and economic recovery in Baltic Countries”,which was authored by Gediminas Macys and published in theInternational Journal of Humanities and Social Science in 2012indicate that countries are able to forecast the financial crisis andreduce their impact. Countries prepare in advance by reducing theirdebts and creating a pre-crisis special fund (Macys, 2012). Inaddition, businesses that view the financial crisis as a creativedestruction are able to invest in innovative projects and adapt tonew structural changes. In this draft, I will provide a point of viewregarding the ideas presented by Macys (2012), assess how the articledeals with the economic theory, and determine whether more relevantfacts are needed to support the issues raised by the authors.
Analysisof the article
Apersonal point of view
Themain argument presented in the article is that countries (such asEstonia) managed to pass through the 2008 financial crisis withminimum loses because they had made adequate preparations. I agreewith this view because the use of effective economic models can helpcountries to determine the probability of a financial crisisoccurring, which allows them to prepare in advance. For example, theIMF identified that financial interconnectedness between countries isa warning sign of a financial crisis (Minoiu, Kang, Berea &Subramanian, 2013). The Baltic nations would have discovered that theinterconnectedness between their financial institutions with theScandinavian financial sector, which created a bubble in the realestate industry, was an early warning sign. The authors present anidea that changing investment strategies to focus more on marketdiversification and innovation can help organizations overcomeeconomic challenges that they face during the global economic crisis.Although this idea is still disputed, I agree with the authorsbecause financial crisis leads to the closure of obsolete firms,while more diversified and innovative firms tend to survive(Alfranseder & Dzhamalova, 2014). Therefore, most of the viewspresented in the article are logical.
Theauthors of the article used two economic theories to explain why theeconomic crisis occurred in 2008 and strategies that the Balticcountries should have used to shield their economies. The authorsused the economic theory of evolution to advance the idea thateconomic crises play a critical role in introducing a new phase ofeconomic growth. This is accomplished through the introduction of newproducts, new production processes, and an increase in investment inresearch and development (Macys, 2012). This theory leads to aperception that the economic crisis is a normal part of the economicevolution that introduces structural changes to the national economy.
Inaddition, the authors used the “pit-stop” theory of recession toadvance an idea that economic crisis force business to become moreinnovative. During recessions, the opportunity cost of failing toinnovate is lower compared to the buoyant periods. This implies thatmany businesses see innovation as the most viable solution that canget them out the crisis. The two economic theories used in thearticle support the notion that the economic crises are unavoidableinstances that play an important role of reforming the nationaleconomy.
Althoughthe main ideas presented in the article are supported by the twotheories, it is evident that the authors could have used more soundeconomic theories to illustrate that the economic crises could bepredicted and their impacts minimized effectively. For example, thetheory of imperfect information holds that markets fail to work asexpected when the stakeholders lack the information needed to predictthe next move that their competitors will take (Bartkowiak, 2015).However, the stakeholders in Lithuania were aware of the excessinflow of cheap credit from the international financial institutionsthat funded the real estate companies in their domestic markets(Macys, 2012). This inflow was responsible for the real estate bubblethat culminated in the financial crisis.
Similarly,the Marxian and Keynesian theories would have been more appropriateto explain the occurrence of the 2008 crisis in Baltic countries.These theories hold that financial crisis result from ineffectiveregulatory governance and failure by the government to learn from thehistory (Vidal, Adler & Delbridge, 2015 and Andrews, 2012).Therefore, sound economic theories suggest that the Baltic nationshad the opportunity to predict that any bubble in their economieswould eventually burst and cause a crisis.
Needfor additional facts
Theauthors of the article “The crisis and economic recovery in BalticCountries” made important assertions about the occurrence and theimpact of the 2008 financial crisis on the Baltic nations, but failedto support the ideas with relevant facts. For example, the authorsclaim that the financial crisis should be considered as a process of“creative destruction”, which means that it provoke businesses toinnovate and develop new products (Macys, 2012). In the absence ofmore relevant facts, this argument can be disputed since one wouldexpect business to reduce their investment during the economic crisisdue to chronic financial distress that they face in such periods(Mazzucato, 2013 and Jicking, 2010). In addition, the internationaleconomic institutions (such as the IMF) experience the challenge oflending to many countries and institutions that are going through thecrisis at the same time, which means that businesses would find itdifficult to invest in innovative projects (Macys, 2012).
Inaddition, the authors used the concept of “creative destruction”to suggest that all businesses become more innovative as a result ofthe financial crisis, but there are no adequate facts to support thisnotion. A study conducted by Alfranseder & Dzhamalova (2014)indicated that the financial institution experience economic crisesas a result of financial innovation that tend to make the financialsystem more complex. Therefore, the use of more relevant facts wouldhave helped the authors inform the readers that there are instanceswhen innovation becomes the source of the financial crisis, insteadof motivating business to become more creative.
Moreover,the authors depict the financial crisis in the Baltic countries as aregional issue in a global economy, where the three Baltic nations(including Latvia, Estonia, and Lithuania) seek for help from thecentral banks of the countries forming the European Union. Theauthors state, “The stable means of EU structural support fundswere the positive factors in these countries” (204). The idea ofcountries getting financial assistance from other nations needed morerelevant facts given that financial crisis affects many nations,which makes it difficult to find assistance from other states(Ksantini & Boujelbene, 2014 and Claessens & Horen, 2014).
Economiccrisis affects many nations at the same time, which makes itchallenging for an individual country to find financial assistancefrom other states. However, the article authored by Macys (2012)indicates that nations (such as Estonia) that use relevant economicmodel are able to predict the occurrence of economic crisis, whichhelps them reduce their debt burden and create special funds toincrease their capacity to deal with emerging challenges. Businessescan also survive the economic crises by diversifying their markets,engaging in the international trade, and becoming more innovative.
Alfranseder,E. & Dzhamalova, V. (2014). Innovationand growth: Evidence from technology research and development.Lund: Lund University.
Andrews,A. (2012). Perspectives on the global financial crisis. Journalof Critical Globalization Studies,5, 167-171.
Bartkowiak,R. (2015). The bank’s financial reporting and the downfall of thebanking sector. InternationalJournal of Financial Management and Science,8 (19), 7-101.
Claessens,S. & Horen, N. (2014). Theimpact of the global financial crisis on banking globalization.Washington, DC: International Monetary Fund.
Jicking,M. (2010). Causesof the financial crisis.Washington, DC: Congressional Research Service.
Ksantini,M. & Boujelbene, Y. (2014). Impact of financial crises on growthand investment: An analysis of panel data. Journalof International Economic Studies,7 (1), 32-57.
Macys,G. (2012). The crisis and economic recovery in Baltic countries.InternationalJournal of Humanities and Social Sciences,2 (19), 202-209.
Mazzucato,M. (2013). Financial innovation: Creative destruction versusdestructive creation. Industrialand Corporate Change,22 (4), 851-867.
Minoiu,C., Kang, C., Berea, A. & Subramanian, V. (2013). Doesfinancial connectedness predict crises?Washington, DC: International Monetary Fund.
Vidal,M., Adler, P., & Delbridge, R. (2015). When organizations studiesturn to societal problems: The contribution of Marxist theory.OrganizationalStudies,36 (4), 405-422.